NEW YORK - Morgan Stanley shares fell the most in five months after a report that US regulators are scrutinising the company’s efforts to prevent potential money laundering by wealthy clients.
The Securities and Exchange Commission (SEC), Office of the Comptroller of the Currency (OCC) and other Treasury Department offices are digging into whether the New York-based bank has done enough to investigate the identities of risky clients, The Wall Street Journal said, citing unidentified people familiar with the matter.
The Federal Reserve was already known to be looking into those controls in 2023.
The bank’s shares fell 5.3 per cent to US$86.84 during regular trading in New York on April 11, its biggest drop since mid-October. A Morgan Stanley spokesperson declined to comment.
The SEC and the Treasury’s Financial Crimes Enforcement Network have sought information on certain clients outside the US who raised red flags, and the bank’s policies to address it, the Journal said.
Specifically, the SEC pressed Morgan Stanley on why it did business with some who had been cut off by E*Trade, the digital trading platform the company acquired.
The inquiries, which have not been publicly disclosed by the bank, focus on a wealth management arm that has swelled into Morgan Stanley’s biggest business, generating almost half of the company’s revenue in 2023.
The US government has been ramping up pressure on the industry to tighten money laundering controls as the authorities make greater use of sanctions.
The bank told regulators it is improving controls and procedures, and met with Federal Reserve officials to allay concerns in 2023.
The OCC also sent the company a formal warning in 2023, known as a matter requiring attention (MRA), demanding executives address its concerns, according to the Journal.
That followed an annual exam of the bank’s anti-money laundering programmes, and a document shows the bank sent the regulator detailed plans for action, the publication said.
Regulators have issued MRAs with greater frequency in recent years. When concerns are deemed more urgent, they also issue matters requiring immediate attention. Such notices are typically flagged to the board and generate a reply including a timeline for corrective action. Deeper investigation or enforcement action may follow if officials are dissatisfied. BLOOMBERG
